Eddie And Gail's Retirement - Case Study Example

EDDIE AND GAIL’S RETIREMENT CASE STUDY By (Author) Name of the Class (Course) Professor (Tutor) Name of the School (University) City Date Contents Introduction……………………………………………………………………............................3 Covering Letter Addressing Client’s Concerns………………………………………………..3 Scope of Advice…………………………………………………………………………………..4 The Clients’ Goals………………………………………………………………………………..5 Cash Flow Statement…………………………………………………………………………….6 Asset and Liability Table………………………………………………………………………..8 Lump Sum Required At Retirement……………………………………………………………9 Superannuation Balances in Two Years………………………………………………………..9 Eligibility to Apply For Age Pension at Retirement………………………………………….10 Indicative Timeframe before Super Runs Out………………………………………………..10 Improvement of Retirement Income…………………………………………………………..10 Conclusion………………………………………………………………………………………11 References………………………………………………………………………………………13 Introduction This report tries to address the concerns of the client together with the compliance elements. It further looks at the clients’ goals and the scope of advice. It outlines the cash flow statement and the asset and liability table together with their discussions. Further, a calculation of lump sum and superannuation balances at retirement is then looked at. The report concludes by taking a look over the work and the questions to ascertain if all of them are answered. Covering letter addressing client’s concerns 4 August 2014 Mr. Eddie and Mrs. Gail Summerset 1 World Street BLUE MOUNTAINS, NSW 3212 Australia Dear Eddie and Gail, Thank you for providing us with the opportunity to help you with Advice regarding your financial affairs. We are very glad to present to you this Statement of Advice, which clearly outlines our specific recommendations regarding your consideration. These recommendations are based on the information provided by you in particular and those obtained from the fact find that was prepared at the initial meeting we had. Further, we outline how the goals and objectives you aspire for can be achieved. The body of this report contains details relating to your financial and personal circumstances, and it forms the basis of our recommendations. Should you have anything to further add or find that any of the background information that is contained in this report is incorrect, do not hesitate to advise us before you proceed any further. In our bid to comply with regulations and privacy laws, we would like to inform you that the information we gathered from you will basically be retained in the confines of our office in a secure location. The recommendations that are made in this financial plan are actually based on your personal information, current financial position and objectives, which may be subject to change. The recommendations should therefore be implemented in a timely manner. However, should the circumstances change or should thirty days elapsed since the date of the Statement of Advice, do not act on any given recommendations, but you should first discuss these with us in order to make the necessary reviews. Please do not hesitate in contacting us should you have any queries relating to the above or if you would wish to fine-tune any given aspect of the recommended strategy. Yours sincerely Super Planner BLUE MOUNTAINS, NSW, 12345, Australia ABN 00 00 00 00 000 AFSL 000000 Scope of Advice Based upon the previous discussion we had, the Scope of Advice given, including the advice pertaining to the wills and the powers of attorney is: Cash flow management-you will have a significant savings capacity due to your very frugal lifestyle and Eddie’s extra income Affordability of new cars- the cars will be affordable and still leave some cash to be put in your super Retirement income funding- the income will be sufficient to last past Eddie’s age 90 Estate planning Insurance-you will be able to fund the private hospital cover Indicative assessment for age pension upon retirement Investment of super funds The clients’ goals The client has a number of goals. These goals include: a. Retire fully over the next 2–3 years. Gail wishes to retire in two years time so that she can have a lot of time at home and in her garden and with her grandchildren. Eddie wishes to retire so he could concentrate on his long-standing clients. b. Upon retirement, you would wish to travel around Australia c. Purchase camper van and the car required for pulling it to be used for travelling around Australia d. Maintain the private hospital cover which you bought a number of years ago as long as you can afford it since Eddie has no personal insurance. e. Continue current lifestyle because you expect your current expenses to remain fairly constant in retirement; however, the expenses may increase with inflation. f. Achieve around $50,000 per annum in retirement income to help maintain current lifestyle that may increase with inflation. g. You would wish potentially to achieve at least a part age pension to help contribute to a retirement income funding. Cash flow statement Cash flow statement Eddie Gail Total Salary and bonus 30,000 35,000 Interest income 7,350 7,350 Assessable income 37,350 42,350 Taxable income 37,350 42,350 Tax 3,685 5,310 Medicare 560 635 Medicare levy surcharge 0 0 Income after tax 33,105 36,405 Total income 69,510 Additional income 15,000 Total income 84,510 General expenses Food and petrol 10,920 Living expenses 23,200 Hospital cover 2,556 Legal and financial planning fees 10,000 Net savings capacity 37,834 Workings a) Interest income Investment property in time deposits= 6%*235000= $14,100 Emergency savings account=4%*15000= $600 (14,100+600)/2= $7,350 b) Food and petrol = (160+50)*52= $10920 c) Hospital cover-213*12= $2556 d) Living expenses Pay-TV and internet=200*12= $2,400 Car registration, insurance and repairs= $4,000 Rates and water= $3,000 Entertainment, vacation etc $10,000 Telephone= $150*12= $1,800 Electricity= 500*4= $2000 Total $23,200 Discussion Even though after Gail’s retirement Eddie will stop doing contract work, he will only do the repair and maintenance work for his long-standing clients and thus contributing some extra income for the family. Further, the family has a very frugal lifestyle. Both conditions will make you have a significant savings capacity basically over the next two years thus enabling you to maintain your current expenses constant and to cater even for increases due to inflation. Asset and liability table Asset Owner Value Debt Comment Home Joint $450,000 Nil Fully paid Super Gail $225,000 Nil Balanced, employer contributions 5.5% Super Eddie $285,000 Nil Balanced, employer contributions 5% Cheque account Joint $4,000 Nil Nil Earnings Term deposits Joint $235,000 Nil Earning 6% Personal vehicles Each Not given 5 and six years old Net worth $1,199,000 Discussion of the current situation You have a significant wealth basically because you do not have any debt and further, much of your wealth is in investment assets hence providing enough retirement income into the foreseeable future because the investment assets promises continued earnings due from the returns they promise. Further, it will again enable you to maintain your current expenses constant and to cater even for increases as a result of increasing inflation Lump sum required at retirement At retirement, the lump sums you will require would be $40,000 for a new car required for pulling the caravan and $35,000 for the caravan itself. You will purchase the camper van and the powerful car required for pulling it which you would use for travelling around Australia particularly when Gail finally retires thus enabling you to travel around Australia cheaply because it is less expensive and more convenient when one uses private means than when one uses public means. Superannuation balances in two years Using calculators and your current superannuation balances and contributions, each of your superannuation balances (indicative balances) in two years when you intend to retire would be: Eddie — your current balance of $285,000 which earns 5% and contributions of $2,700 per annum for 2 years would be =$315,000. Gail — your current balance of $225,000 which earns 5.5% and contributions of $3,150 per annum for 2 years would be = $253,380. This results to a total of $568,000 at retirement. Eligibility to apply for age pension at retirement By checking the eligibility criteria on the website, after two years when they intend to retire, Eddie will be legible to apply for the age pension because he will be 65 years. However, Gail will be age 62 only; hence, she will not qualify for the age pension because she will still be too young. The minimum age limit is 65 years for women born after December 31, 1948 just like Gail. Indicative timeframe before super runs out Using the retirement projection calculator and your joint super balances calculated above, the indicative timeframe before the $50,000 per annum from your super runs out when Eddie’s age will be 83 years. How retirement income improves if term deposit is used to buy a caravan and car If you use their term deposit money to buy a caravan and car and then use the rest to increase your super balances at retirement, your retirement income would improve as follows: The term deposits have a balance of $235,000, deducting the cost of the caravan and the car of $75,000 results to a surplus of $160,000 that is then put into your super. Taking your previous expected balance of $568,000 and adding the above surplus of $160,000 results to a total of $728,000. From the retirement projection calculator on the website, it is evident that your money would last past Eddie’s age 90. Conclusion Looking over the work and the questions the client asked, it is evident that all of them have been answered as shown below: Among the four questions asked, the first question was what to be done by the extra money they have now. This question has been partially answered. Therefore, the best answer for this question is that you should save more since you are not legible to get age pension. In addition, saving more implies that you will have a higher retirement income instead of spending the extra money you have now. It is therefore advisable that you save the extra money in an interest generating account. The second question is whether you will be able to afford a new car and the caravan. This question has been fully answered. The best answer is that you will be able to afford it by using some of your term deposit money and still remain with some surplus that you can put into your super to increase your indicative timeframe upon which your money would run out. The third question was if you will be able to get at least a part age pension assuming no big changes. Initially, you will not be able because it is obvious that Gail will not qualify by age. However, you will not need to depend on this age pension if you save enough because you will have enough money to increase your indicative timeframe upon which your money would run out to age 90 for Eddie. The last question was if you would be able to earn $50,000 in retirement. And from the projections it is evident that you will be able to afford your retirement income requirements. References Top of Form Banister, P. M. (2012). Australian financial planning handbook 2012-13. Pyrmont, N.S.W., Thomson Reuters. Pg. 997-1001. Brandon, E. D., & Welch, H. O. (2009). The history of financial planning: the transformation of financial services. Hoboken, N.J., John Wiley & Sons. Pg. 104-110. Mayer, R. H., & Levy, D. R. (2004). Financial planning for high net worth individuals. Washington, DC, Beard Books. Pg. 3-1 Mendel, J. (2009). Australian master financial planning guide 2010/11. North Ryde, [N.S.W.], CCH Australia. Pg. 250-255 Newnham, M. (2011). Funding your retirement a survival guide. Richmond, Vic, Wrightbooks. Pg. 6-10 Taylor, S., & Juchau, R. H. (2012). Financial planning in Australia. Chatswood, N.S.W., LexisNexis Butterworths. Pg. 378-380 Bottom of Form Read More